Still in Journal Sentinel: State must find right mix of job creation, taxation

Guess the source of the following
tax-reform plan for Wisconsin. The plan, paired with about $611 million in
spending cuts, called for:

■ Cutting individual
income tax rates enough to save $2.4 billion.

■ Increasing the state
sales tax to 6% from 5% and expanding items subject to the tax, raising $3.2
billion.

■ Hiking the cigarette
tax by 50 cents a pack, producing $330 million in new revenue.

■ Raising the state
gasoline tax by 2 cents a gallon ($79 million) and auto registration fees by
roughly $20, depending on the age and weight of the car ($126 million).

The correct answer has
nothing to do with the tea party, Blue Dog Democrats or even the Trilateral
Commission. It was the product of a blue-ribbon panel of Republicans,
Democrats, business executives and think-tank leaders and delivered Oct. 15,
2002, during the third Wisconsin Economic Summit in Milwaukee.

Although largely
dismissed by the two major-party candidates for governor at the time, Republican
Scott McCallum and Democrat Jim Doyle, the plan remains an example of bold
thinking about taxes, spending and economic growth. It was Camelot for policy
wonks, even if the politics were wrong for the times.

Roll ahead 11-plus years
and another governor, Republican Scott Walker, has charged his state revenue
secretary and lieutenant governor to embark on a top-to-bottom review of
Wisconsin’s tax code with the help of people invited to private “listening
sessions.” Ideas could include eliminating Wisconsin’s individual income
tax and raising the 5% sales tax, plus eliminating many items now untouched by
the sales tax.

“Any discussion
about this clearly should involve an outright elimination (of state income
taxes),” Walker told WisPolitics.com.

Because individual
income taxes account for roughly half of the state’s general-fund budget in any
given year — about $8.4 billion — making up the difference would likely require
a doubling of the sales tax, if not more. But this exercise isn’t about pesky
details — at least, not yet. It’s about rekindling a dialogue about what is the
right taxation mix for Wisconsin in a competitive 21st century economy.

That’s precisely what
the 2002 Economic Summit report set out to do, as well. A commission that included
former state Administration Secretary Mark Bugher, former state Auditor Dale
Cattanach, former state Revenue Secretary Mike Ley and retired Wisconsin
Taxpayers Alliance President Jim Morgan knew the state was facing a $2.8
billion budget deficit.

They and others took on
the task of writing a bipartisan plan that spread the pain of spending cuts
across state and local government, local schools and higher education, and
which devised a revenue system to rely more on user fees and consumption taxes.
Consider these passages from the 2012 report:

■ “We advocate
revenue reforms designed to raise new revenues, redesign the revenue system to
reflect significant underlying changes in the state economy, such as the shift
from manufacturing goods to providing services.”

■ “Reduced income
taxes may encourage business expansion and create more high-wage jobs, stem the
‘brain drain’ by creating a more attractive environment for professional and
technical workers, (and) attract new industries by having a greater supply of
highly trained professional and technical workers.”

Sound familiar? The same
basic debate is taking place today as Democrats and Republicans in the
Legislature and beyond struggle to define the right mix.

What’s lacking as 2013
yields to the 2014 election year is the fiscal urgency that confronted
Wisconsin in late 2002, when a combination of economic factors and overspending
in some areas combined to produce the deficit. The state budget is largely in
balance today, which is a competitive advantage many states cannot claim.

What’s more glaring
today is the sense of economic urgency. Wisconsin in 2002 was still a
manufacturing dominated state. In fact, the peak month for manufacturing
employment in Wisconsin was March 2002, when there were about 600,000
manufacturing jobs. Today, the number is more like 460,000.

The steady loss of such
jobs, which has taken place over Democratic and Republican administrations
alike, means Wisconsin must once again think boldly about how to position the
state to compete for jobs and growth while fairly taxing its own citizens and
businesses.

Walker has initiated his
own tax-reform process; the Democratic candidates for governor will certainly
do the same. As the 2002 report prophetically noted: “The Chinese symbol
for crisis includes the characters for both danger and opportunity. Sometimes,
crises can result in positive change.”

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